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What problems have prompted countries of Eastern Europe to move towards a more market orientated economic system?

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Introduction

Year 12 Economics Essay a) What problems have prompted countries of Eastern Europe to move towards a more market orientated economic system? b) What problems have these countries encountered in the transition? Economies try to solve the basic economic problem that exists in the marketplace. Scarcity of resources in a world of infinite human wants. This causes the basic economic problem; resources have to be allocated between competing uses. To solve the problem the Government has to decide what will be produced, how will it be produced and for whom will it be produced. The answers to these questions depend on what economic system a government decides to operate. Countries in Eastern Europe wanted to move towards a more mixed economy which is a combination of market economies and command economies. In a command economy resources are allocated by the Government through careful planning. This means that the four factors of production (land, labour, capital and enterprise) are all controlled by the State. In market economy the government makes no economic decisions. These are made through the market which is the interaction between consumers and businesses. In a command economy goods and services can be over or under produced because of the difficulties in estimating demand. ...read more.

Middle

There are few incentives for workers to work hard and this results in low productivity. They cannot change jobs and promotion is difficult. Once you have been given a job it is yours for life. There is also small chance of you losing your job so workers put in little effort. In addition, individuals are taxed more for higher wages so there is no incentive to work hard. Market economies allow people to choose their own jobs and live their life their own way. This leads to high motivation and high productivity. Companies and businesses also have few incentives. For example, if they reach their target production rate their reward would be to be given a higher one next year. The system is often riddled with abuses of power and privilege meaning wrong decisions are made. As command economies only work with a bureaucracy, there are many people in positions of power. These people decide what is produced and sometimes they choose what they want as there is little choice in the market. A move to a more market orientated economy means giving the consumer more choice. It would allow competition, better prices and better quality products. ...read more.

Conclusion

Businesses that supplied machinery or the materials required, for the production of the good would suffer too. Everything in a command economy is owned by the state. This includes all the land and capital. So when an economy is in transition some of the states assets must be sold or privatised. This can be done in three ways. The first option is the state can give the land and capital away to the people currently employing them. This option is a very arbitrary way of sharing the assets; some capital could be more efficient than others. The second option is to sell the capital to the highest bidder. This sometimes caused problems as some of the businesses had to be closed because they were unprofitable. The last option is that they can split it fairly between all the countries citizens. This is quite a successful way of sharing the assets, as shown by the Czech Republic. The problems of lack of choice, bureaucracy and too high state intervention have prompted command economies to move towards a more market-orientated system. However transition isn't easy. Inflation may rise greatly, unemployment could also increase and businesses need to be privatised. However I think in the end these times of transition are worth it, it gives freedom of choice and in the end, a more balanced economy. Sophie Bradstreet 12JCh ...read more.

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